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Terms of Spectrum Auction in Greece Rankle Operators

BERLIN — This November, the Greek government hopes to raise as much as €300 million by auctioning some of the best parts of its broadcast spectrum to three mobile network operators. Proceeds from the sale would help Greece weather its financial crisis.

But Greece, despite its grave fiscal problems, is by no means acting like a distressed seller. The country is planning to sell 14 units of prime 900-megahertz spectrum. At current prices, a block of 10 megahertz could cost as much as €46.6 million, or $66.2 million. One operator, Wind Hellas, says that is twice as much as other European sellers are asking in similar sales.

“The approach used to set the price for the renewal of mobile spectrum is driven solely by short-term revenue gains and disregards the need for Greece to create a positive investment climate,” Nassos Zarkalis, the chief executive of Wind, the No. 3 operator, said after the government set the auction’s terms in late July. “This sends the worst signal possible to international investors.”

The price demands are particularly galling to Wind, whose owners, a group of five U.S and British investment funds, recently paid €420 million to acquire the company in December, the largest single investment by a foreign company in Greece so far.

A Greek government official, during an interview, disputed Mr. Zarkalis’s claim that the auction had been designed to siphon as much money as possible from the operators, which besides Wind include the market leader, Cosmote, a unit of the former monopoly, O.T.E., that is 40 percent owned by Deutsche Telekom; and Vodafone Greece, the No. 2 operator.

The auction has been discussed and planned for more than a year and predates the country’s financial crisis, said the official, a senior administrator at the Hellenic Telecommunications and Post Commission, the regulator holding the auction. He did not want to be identified, citing his agency’s policy. The auction’s goal, the official said, was to level the playing field in Greece among the three operators going forward as they introduce faster third- and fourth-generation mobile services.

Vodafone and Wind already hold licenses for 900-megahertz spectrum, and Cosmote uses the 1.8-gigahertz band. The higher frequency, however, requires Cosmote to operate three times as many cellphone base stations in the country to provide the same coverage its rivals can.

Under the government’s plan, Vodafone and Wind, whose licenses for 900-megahertz spectrum expire next year, would have to give up some of that prime spectrum to Cosmote so that the three operators would have roughly equal amounts as they face the future.

In addition, all three will be required to share cellphone base stations in the future, a concession to a public outcry over the proliferation of signal masts around Greece.

“We did extensive benchmarking, and our prices are in line with what is happening elsewhere,” the regulatory official said. If the goal had been to maximize revenue for the Greek government, the official said, the regulator would have simply put all of the spectrum up for bid in an open auction, which would drive up the prices.

Gerasimos Gerolymatos, an analyst in Athens at International Data Corp., estimated that the Greek government’s asking price for spectrum was two to three times the prices for comparable spectrum elsewhere in Europe. The steep demands are coming at a time when the revenues of Greek mobile network operators have fallen an average of 20 percent amid the economic downturn, he said.

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The operators feel caught in a bind, Mr. Gerolymatos said, being asked to pay more for spectrum when their businesses are weaker than usual. Press officers for Vodafone and for Deutsche Telekom, the biggest shareholder in Cosmote, declined to comment.

“Their primary reason for opposing the auction and its prices are the difficult economic circumstances of the moment,” Mr. Gerolymatos said. “Spectrum is a very important company asset, and mobile operators cannot leave this unattended despite the high price.”

Greece is one of Europe’s smaller telecommunications markets, with 12.3 million mobile users and 2.3 million broadband subscribers, according to the International Telecommunications Union, an industry standards organization based in Geneva. The country used to have a fourth mobile network operator, Q-Telecom, but that company amassed a €25 million debt before being bought in 2007 by the former owners of Wind Hellas for €350 million.

In mobile phones, the market is dominated by Cosmote, the wireless arm of the former fixed-line monopoly, O.T.E. In the early 1990s, the government sold Cosmote’s new competitors, Vodafone and Wind, the bulk of Greece’s best spectrum. Cosmote entered Greece’s wireless market five years later but leapfrogged the competition with backing from O.T.E. and by acquiring a prominent retailer, Germanos Group, in 2006.

Now, as Greece’s three operators introduce 3G and services using Long Term Evolution, or LTE, technology, the government wants to level the playing field.

But favoring Cosmote this time is proving controversial because Cosmote, which controls roughly 50 percent of the market, is still partly state-owned, with the Greek government owning 10 percent of its parent, O.T.E.

Vodafone has a roughly 23 percent market share in Greece and Wind about 19 percent, with service resellers making up the other 8 percent.

Dimitris Hatzinikolaou, an associate professor of economics at the University of Ioannina, in northwest Greece, said public suspicion surrounded the sale of state assets amid the economic crisis. That also applies to the spectrum auction.

But Mr. Hatzinikolaou said most Greek voters worried their government might end up undercharging, not charging too much.

“I am all for privatization for reasons of economic efficiency, competition and so forth,” Mr. Hatzinikolaou said. “But I fear that the prices being offered are way below their actual values. People in Greece are very unhappy with these sales.”